Mon, Jan 24, 2005 page11

• Software giant Zennstromon pioneering peer-to-peer

  At the age of 39, Niklas Zennstrom has made a name for himself throughout the world by co-founding two peer-to-peer-based software programs, Kazaa and Skype, two years ago, which trembled the global music and telecommunication industries. In his latest visit to Taiwan, he talked with `Taipei Times' staff reporter Jessie Ho about how he is trying to revolutionize the traditional telecom industry through what he called a disruptive technology.

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  Taipei Times: How did you originate the idea of applying peer-to-peer (P2P) technology to the telecom industry?

  Zennstrom: When we look at the evolution of the Internet, every online communication was P2P when it first appeared. When the Internet became more popular in the 1990s, companies invested a lot of money to expand their Web servers and network capacity. But to establish a very powerful communication network, it's much more logical to distribute peer-to-peer. The more people use it, the more resources they have without having to invest in servers and other infrastructure. As this form of communication can be done without going through a server, users can communicate with each other even when the server dies.

  

  Niklas Zennstrom gestures during the interview.

  PHOTO: CHIANG YING-YING, TAIPEI TIMES

  TT: Now that Skype has attracted a huge number of users, what is your next step?

  Zennstrom: What we are doing now is developing new paid services for Skype. Voicemail, with which users can leave voice messages for other users when the receiver did not answer the call or it's disconnected, are examples. We are also working to allow customers to use Skype from wherever they are and not have to be tied to the computers. Last year we worked with Siemens AG, which produced cordless phones for Skype. We also seek to make Skype compatible on mobile devices including smart phones and pocket PCs of various platforms. Now we are in the process of testing and evaluating some of the different platforms, such as Windows and Linux, and hope to come out with Skype mobile devices that can be used with WiFi networks. Another value-added service that is activated on a successfully market-to-market base is "SkypeIn." People can make calls from a normal telephone to a computer by dialing telephone numbers. But whether we can introduce this service depends on local market conditions. Phone numbers are hard to obtain in some markets. In Taiwan, there are still a lot of issues that haven't been worked out. [Editor's note: Robert Lo (羅子亮), vice president of Skype Technologies SA's local partner, joined the interview and elaborated on this question.]

  Lo: We've asked local fixed-line operators to sell phone numbers to us since last year. But in Taiwan, they are not allowed to wholesale the numbers to Internet phone operators. So we are expecting the Directorate General of Telecommunications to lift the ban, which it previously said should be okay by the middle of this year. Before that happens, users in Taiwan can buy overseas phone numbers acquired by Skype. Skype has purchased some numbers in the US and Canada, and by buying the numbers, friends or business partners in the country can call the Taiwan user with local rates. The service is still in testing, and once Skype officially launches it, users in Taiwan can use it, too.

  TT: Has your company broken even after less than two years of operation? Do you need to raise more funds to maintain operations, especially when most of Skype subscribers merely use the free service?

  Zennstrom: Our last fund-raising was in February last year. I don't have exact financial figures at this point, but we are confident now that our revenue growth is good enough for us to not to have to raise any more money. We also have a cost-efficient measure to save costs in personnel and marketing. So far, we have only 80 employees in the company, which is quite small considering we operate on a global scale. We are certain that the revenue growth is definitely going faster than the costs growth.

  TT: What is your secret for making your product prevalent in such a short time with only small marketing expenditures?

  Zennstrom: We provide our service worldwide, so it would cost us a lot of money if we used traditional marketing. The revenue we need to make from each user may not be that much, but we need to accumulate a lot of users. Therefore, we need a model that won't cost us hundreds of dollars to acquire a new customer. Having users recommend the service to others is proven to be more effective than airing a TV advertisement. As the Internet is an open communication system, we figured out that's the most powerful way to promote our product.

  TT: What is your marketing strategy for Asia?

  Zennstrom: Taiwan is our first market and where we have a co-branded partner -- PC Home -- and the cooperation has been very successful. So we have been doing the same model in many other Asian countries. In Japan, we partnered with Buffalo Inc and with Tom Online in China. It's all very successful. We are also hoping to go to some other countries in Asia with this business model very soon.

  TT: Anti-virus companies indicated that P2P technology poses a threat to online security. What do you think?

  Zennstrom: I think they probably refer to file-sharing rather than a voice communication service. A fundamental principle of Skype is security in terms of communication because everything is built with digital encryption certificates. Whenever you communicate with someone, your identity is self-contained. There is always an issue when you run software on a computer inside the company firewall. Vulnerabilities happen all the time, mostly from Microsoft itself or another operating system. Skype has the same kind of vulnerability issues like any other software that connects to the Internet. But so far we report few security problems.

  TT: As voice over Internet Protocol (VoIP) has become so popular with users, more traditional telecom operators and Internet service providers are making inroads into this area. How do you plan to face an avalanche of competitors?

  Zennstrom: Take buying a car for example. Early on, people may care about what technology and engine the car is using. But at the end of the day, they care more about the looks, ease in driving and whether it delivers good quality. This is the focus for us and what has made us successful so far. We have an awareness that there are many telecom and IP service companies joining the field. But I think as long as we can keep focusing on what our users want and what problems they have, we can still lead the market. If we stop listening to our customers, we'll be in big trouble.

  TT: After music and telecom, in what other areas would you like to apply P2P technology ?

  Zennstrom: P2P can be applied to many different things. Content distribution is an obvious application. Big files such as PC gaming software can be distributed peer-to-peer without having to use a Web server. The tool will be more useful in streaming when people have wider bandwidth. People can get high-definition video clips with a faster speed via P2P. But at this moment, I'll still concentrate on developing new features for Skype users, and there's a long way to go. Of course I will create new businesses with new ideas when I have more time.

  TT: You have said that P2P is a form of disruptive technology, which has haunted the music and telecom industry. How do you see the effect of P2P?

  Zennstrom: The disruptive technology is something that doesn't haunt anyone. The first personal computer did not haunt the computer industry, but liberalized it by making computers available for everyone. When the first PC came to the market many years ago, big companies that made big mainframe computers said there is absolutely no market for personal computers and wouldn't believe anyone would like to have a PC at home. These companies that ignored the new innovation had big problems in surviving. Companies that could embrace new technology and move with the market can survive. The best example is IBM. It was the leader in mainframe computers but transitioned itself to a PC and service company when the new idea came.It's the same thing with telecommunications now. As broadband is growing, it's so much more cost-efficient to communicate via computer software than through a telephone network. If telecom providers ignore that fact, they are going to lose customers over time and still see the same costs in telephone networks and others. Some phone companies like Skype and file-sharing software, because Skype encourages users to buy broadband connections. People want to use applications rather than broadband itself, and Skype is a good reason to have broadband. So whether P2P is a threat or driver to the industry really depends on the mindset of phone companies and how they deal with change.

  TT: Some have called you a troublemaker to the music and telecom industries, and some said you resemble Bill Gates. How do you take these comments and criticisms?

  Zennstrom: I don't think I'm a troublemaker (laughs). I think maybe one out of five million people would think so, while others are happy with the product. So far Skype has 22 million users, and most of them like it. Maybe a few executives of established capitals think Skype is a problem. So I have to listen to the majority. What I try to do is to make a difference by changing the game. One cannot achieve success by following others and being a copycat. About the Bill Gates comparison, I take it as just a comment.
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